Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Friday, September 21, 2007: It's
scrounge time. Take your cash and find a beaten-down asset that's ready to bounce
back. Goldman Sachs was the classic.
There are obvious
problems: Figuring if it bounces back versus staying down. And beating everyone
else (who has the same strategy) to the punch. The stockmarket has full information.
Today -- and going forward for the next year -- I'd prefer to pounce on cheap
local real estate. Few people will know about it -- at least fewer than are
in the stockmarket. You can bring some control -- curry favor with local bankers,
etc. The odds are in your favor.
You need to tell
local brokers, local banks, etc. you're interested and stay in touch. Generating
deal flow is critical.
Oil Sands Trust has been a lousy investment: But
the high price of oil should save it, I'm praying since I own a little. My friend
Jim Kingsdale writes
Energy Investment Strategies.
His latest post:
the New Venezuela. Not.
September 19th, a study commission released a report to the government of
Alberta saying that oil and gas companies operating in the province should
be taxed about 20% more than currently is the case. The reactions were interesting:
Gartman, a well-followed, commodity sensitive commentator and investor excoriated
the announcement in extreme terms and said he was selling all Canadian equities,
never to look back (unless, one presumes, the Province rejects the recommended
Oil, which has proposed to buy Western Oil Sands for nearly $6 billion, said
the deal will go through. They suggested that the new tax proposal was already
in their numbers but also said it might impact their capital spending plans.
Why would they want to buy a company in which they hesitate to make further
investments for growth? Their capex caveat seems like a rather weak version
of the Shocked, shocked reaction required of any company toward
any new tax.
But I was also
disappointed. The recommendation reminds one of the Venezuelan approach to
resource development, which is producing such disastrous results. On the other
hand, my disappointment is mitigated somewhat by the fact that the new taxes
are partially designed to repair the environment upon completion of the projects,
which is a worthy and altogether appropriate reason for a tax. Also, I still
do not believe the government of Alberta has any interest in being confiscatory
or in denying investors a reasonable even an excellent return,
unlike the base attitude of Dr. Chavez.
I sold two oil
sands holdings that still require major capital investments in order to reach
positive cash flow. Financing for such investments could suffer. On the other
hand, I am keeping my core position in Canadian Oil Sands, which has its investments
in place, is growing its cash flow enormously based on higher, non-hedged
oil prices, and which pays a 5% dividend, which grows with the depreciating
dollar and promises to grow further with the companys cash flow. In
fact, I think this recent pullback is an opportunity to add to holdings of
The bottom line
of investments in the oil sands is that they really will pay off if the price
of oil not only goes higher but goes much higher. That, in fact, is exactly
what the price of oil will do the closer we get to peak oil. And since peak
oil is only a matter of time, it seems like investments in the oil sands are
as close to a sure thing as we are likely to find, if one has patience.
In terms of
the actual impact of this proposed tax, let us note that taxes (to simplify
the matter) are currently 25% of profits for COSWF. If they are increased
20%, they will become 30% of profits. Taxation calculations at COSWF are complex,
but I would estimate that a 5% greater tax on profits could equate to something
like a 3% reduction in cash flow. On the other hand the price of oil today
is about 17% higher than it was just a few weeks ago ($82 vs. $70). That higher
price goes directly to the bottom line. It equates to a roughly 40% increase
in cash flow. So I find it hard to be too disappointed in the possible loss
of 5% of profits when my investments cash flow has just been increased
by 40%, or 37% net of a proposed but not yet enacted tax.
higher oil prices make for very happy times for Canadian Oil Sands Trust regardless
of this tax proposal. The oil price wont keep going straight up, but
the long term trend is clear. There are days (months) when the rain will fall
on oil, but a sunny future is virtually assured in terms of higher oil prices.
(Incidentally, I plan to address the moral dimensions of rooting for a higher
oil price at a future time. Short take: higher oil prices are the best thing
that can happen for the long term health of our society and economy. Its
why we need a carbon tax.)
at 50 - guaranteed.
President Nicolas Sarkozy will face his first strike after five of the eight
railroad unions in France called for a day of protests on Oct. 18, vowing to
defend their members' right to retire at age 50.
The strikes will
be a test of labor's strength against Sarkozy's resolve to overhaul pension
privileges enjoyed by 500,000 public-sector employees.
Labor unions said
that the strike could last more than 24 hours if Sarkozy did not take their
grievances into account and some warned that France could face weeks of mass
protests. In 1995, a three-week transport strike paralyzed the country and forced
Sarkozy's predecessor, Jacques Chirac, to withdraw a revision of public sector
P.S. The government
of France is virtually bankrupt.
Piracy Paradox. Here's
James Surowiecki's latest piece in the New Yorker. It's totally
wonderful. I love this sort of reverse logic:
In 1932, a group
of American fashion manufacturers found themselves beset by a proliferation
of cheap knockoffs. Designs, then as now, were not protected by patents or
copyrights, so the manufacturers decided to take direct action to stop the
copying. They set up the Fashion Originators Guild of America to monitor retailers
and keep track of original designs; if you look at vintage dresses from the
thirties, you can find labels reading A registered original design with
Fashion Originators Guild. Retailers selling knockoffs were red-carded,
and guild members wouldnt sell their merchandise to red-carded stores.
This was unpopular with the retailers, but it seems to have put a damper on
the copying. The only hitch in the plan was that it was illegal: in 1941,
the Supreme Court ruled that the manufacturers arrangement violated
antitrust law, and the knockoff artists stayed in business.
In the decades
since, copying has remained ubiquitous in the fashion industry. Fashion-forward
but low-priced retailers like H & M and Zara have flourished, thanks to
their ability to take designs from Milan to the mass market. Private-label
designers for major department stores trumpet the fidelity of their imitations.
And almost as soon as hot new designs appear on the runway, photographs and
drawings of them are on their way to Chinese factories that can produce reasonable
facsimiles at a fraction of the cost. Designers are as annoyed by this as
their prewar forebears were, and so Congress now finds itself considering
a bill, pushed by the Council of Fashion Designers of America, that would
give original designs a legal protection similar to copyright.
frustration at seeing their ideas mimicked is understandable. But this is
a classic case where the cure may be worse than the disease. Theres
little evidence that knockoffs are damaging the business. Fashion sales have
remained more than healthyestimates value the global luxury-fashion
sector at a hundred and thirty billion dollars and the high-end firms
that so often see their designs copied have become stronger. More striking,
a recent paper by the law professors Kal Raustiala and Christopher Sprigman
suggests that weak intellectual-property rules, far from hurting the fashion
industry, have instead been integral to its success. The professors call this
effect the piracy paradox.
stems from the basic dilemma that underpins the economics of fashion: for
the industry to keep growing, customers must like this years designs,
but they must also become dissatisfied with them, so that theyll buy
next years. Many other consumer businesses face a similar problem, but
fashionunlike, say, the technology industrycant rely on
improvements in power and performance to make old products obsolete. Raustiala
and Sprigman argue persuasively that, in fashion, its copying that serves
this function, bringing about what they call induced obsolescence.
Copying enables designs and styles to move quickly from early adopters to
the masses. And since no one cool wants to keep wearing something after everybody
else is wearing it, the copying of designs helps fuel the incessant demand
for something new.
is not necessarily easy on designers, who have to keep coming up with new
ideas rather than being able to milk a trend for years. But it means that
in the industry as a whole there is more innovation, more competition, and
probably more sales than there otherwise would be. And the absence of copyrights
and patents also creates a more fertile ground for that innovation, since
designers are able to take other peoples ideas in new directions. Had
the designers who came up with the pinstripe or the stiletto heel been able
to bar others from using their creations, there would have been less innovation
in fashion, not more.
If copying were
putting a serious dent in designers profits, it might slow the pace
of innovation, since designers would have less incentive to produce good work.
But while knockoffs undoubtedly do steal some sales from originals, they are,
for the most part, targeted at an entirely different market segmentpeople
who appreciate high style but cant afford high prices. That limits the
damage knockoffs do, as does the fact that fashion is one of the few industries
in the world where people are still willing to pay a considerable premium
to own original brands instead of imitations. (Thats why counterfeits,
which pretend to be original products, are illegal.) The best evidence of
this is the fact that luxury-goods makers, far from cutting their prices in
response to the knockoff boom, have instead been able to raise prices consistently.
In fact, given the importance to fashion of what the law professor Jonathan
Barnett calls aspirational utilitythe enjoyment people get
from imitating the life style of the rich and famousone might think
of knockoffs as being like gateway drugs: access to the lower-quality version
makes buyers all the more interested in eventually getting the real stuff.
industry is not alone in its surprising mixture of weak intellectual-property
laws and strong innovation: haute cuisine, furniture design, and magic tricks
are all fields where innovators produce new work without being able to copyright
it. This doesnt mean that we can always do without copyrights and patents,
and fashion has unique characteristics that limit the damage that copying
can do: its relatively cheap to come up with new designs, theres
a culture of novelty, and people are willing to pay more for the right brands.
But we should be skeptical of claims that tougher laws are necessarily better
laws. Sometimes imitation isnt just the sincerest form of flattery.
Its also the most productive.
friend suffers heart attack: He's in the gym working out.
Suddenly he feels "an elephant on his chest." He
gets very cold. He is sweating and shivering. He's having a heart attack. They
get him to the hospital. Within 30 minutes, they have a stent in him. "The
moment they put the stent in the pain disappeared instantly," he told me.
A day later the doctor tells him he had a "massive" heart attack.
One of his key arteries was 99.5% blocked. The doc says my friend will now lead
a "normal" life. Facts: my friend is 51, has normal blood pressure
and low cholesterol. Apart from being 20 lbs overweight, he's normal. The heart
attack was a fluke. He was essentially saved by insisting on being taken to
Lenox Hill Hospital,
which is skilled at stents.
from this: Find out now which of your local hospitals is best at dealing with
heart attacks. Note: You can do zillions of heart scans and stress tests. He'd
had them. But none of them will protect you against a fluke blockage -- which
is what happened to my friend.
of those wonderful moments: I got my hair cut yesterday. A nice lady
was sweeping up the gray hair. I said, "Save the hair. My fans will pay
millions." Without batting an eyelid, she replied, "So, find me one."
simple home tips
1. If you are choking on an ice cube, don't panic. Simply pour a
cup of boiling water down your throat.
2. Avoid arguments with the Mrs. about lifting the toilet seat by using the
3. A mouse trap,
placed on top of your alarm clock, will prevent you from rolling over and going
back to sleep after you hit the snooze button.
4. If you have
a bad cough, take a large dose of laxatives. Then you will be too afraid to
5. Chapped lips?
Rub dog poop on them. It won't ease the chapping, but it will keep you from
6. You only need
two tools: WD-40 and duct tape. If it doesn't move and should, use the WD-40.
If it shouldn't move and does, use duct tape.
Back in cowboy times, a westbound wagon train was lost and low on
food. No other humans had been seen for days and then the pioneers saw an old
Jewish rabbi sitting beneath a tree. "Is there some place ahead where we
can get food?" they asked.
tink so, " the old man said, "but I wouldn't go up dat hill und down
de udder side. Somevun tole me you'd run into a big bacon tree."
tree?" asked the wagon train leader.
bacon tree. Vould I lie? Trust me. I vouldn1t go dere."
The leader goes
back and tells his people what the rabbi said.
"So why did
he say not to go there?, " a person asked.
said, "Oh, you know those Jewish people - they don't eat bacon."
So the wagon train
goes up the hill and down the other side. Suddenly, Indians attack them from
everywhere and massacre all except the leader who manages to escape and get
back to the old rabbi.
Near dead, the
man shouts, "You fool! You sent us to our deaths! We followed your route
but there was no bacon tree, just hundreds of Indians who killed everyone but
The old Jewish
man holds up his hand and says, "Oy, vait a minute." He quickly picks
up an English-Yiddish dictionary and begins thumbing through it.
I made myself such ah big mishtake! It vuzn't a bacon tree, it vuz a ham bush!!
This column is about my personal search
for the perfect investment. I don't give investment advice. For that you have
to be registered with regulatory authorities, which I am not. I am a reporter
and an investor. I make my daily column -- Monday through Friday -- freely available
for three reasons: Writing is good for sorting things out in my brain. Second,
the column is research for a book I'm writing called "In Search of the
Perfect Investment." Third, I encourage my readers to send me their
ideas, concerns and experiences. That way we can all learn together. My email
address is .
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